The 1 Percent Solution?

“It is cocaine… a seven-per-cent solution. Would you care to try it?” Sherlock Holmes asked Doctor Watson. The master detective mainlined cocaine three times a day at the start of Sir Arthur Conan Doyle’s famous detective novel, “The Sign of Four.”

The good Dr. Watson admonished Holmes for his drug use. In later stories, Holmes has apparently kicked his drug habit (not actually illegal in Britain until the Dangerous Drug Acts of 1965 and 1967).

Most Internet publishers aren’t as smart as Holmes. Nor are they using as potent a drug. Desperate for online revenue kicks, they’re addicted to a lousy 1 percent solution for their online revenue woes.

Much as cocaine was in vogue in the 1980s (and Holmes’s 1880s), charging for online access is in vogue among publishers of traditional online content. Salon.com, The Irish Times, South China Morning Post, FT.com, Ohio’s Columbus Dispatch, Iowa’s Cedar Rapids Gazette, and many other online newspaper and magazines of all sizes have been seduced by the trend.

Just as there’s nothing wrong per se with drugs, provided you use the right ones properly, there’s nothing wrong per sewith charging for online content, provided you charge for the right things and do so in the right ways.

Too many online publishers indulge in quick, cheap paid-subscription fixes that risk their online futures. Little revenue jolts make them feel good for a while, but they get strung out on a thin 1 percent solution — the approximate percentage of unique users publishers have converted from free to fee.

For a report I did recently, I spent six weeks talking to managing directors, marketing directors, and managing editors of many major online publications that, for an appreciable amount of time, have charged subscribers for access. Each is a major brand with marketing and promotional muscle.

Hardly any of these executives are willing to talk for the record, but all were rather candid about how they have induced only between 0.25 and 1.25 percent of their unique users to pay for access to traditional content.

Let’s look at four major examples from three continents.

Salon.com

Salon.com is the poster child of paid-subscription, general-interest content. Salon had been unable to sustain itself with ad sales. When its finances began to collapse after the ad recession began in late 2000, Salon started charging for full access. For $30 annually (“just 8″ a day”) or $6 monthly, a subscriber gets complete, ad-free access. When Salon later began accepting larger ad banners, it offered a less expensive option: $18.50 annually for complete access with ads. Salon sweetened its offers with freebies: subscriptions to Utne Reader and Mother Jones; an audio-book; three Broadway audioplays; and MP3 downloads for new subscribers.

Salon’s PR apparatus engineered great publicity about how the site generated more than 35,000 paying subscribers during its first eight months of paid access, the fees now constitute over 30 percent of revenues, and the goal is at least 50,000 paying subscribers by year’s end.

The PR doesn’t tell the full story. Sure, Salon generated between 35,000 and 50,000 paying subscribers, after soliciting 4 million unique monthly users. After 18 months of trying to generate paid subscriptions, Salon’s conversion rate was between 0.875 and 1.25 percent.

Even if each subscriber paid the most expensive monthly rate, Salon would gain at most $3.6 million per year from subscriptions. More likely, most pay the more economical $30 or $18.50 annual rate. Salon earns no more than $2 million per year from subscriptions.

Salon desperately needs the revenue. Gross revenues during the past year totaled only $3.6 million from all sources, so Salon was wise to charge for access to stave off bankruptcy. A press release touting how paid subscriptions now account for the bulk of revenues basically means other operating revenue sources collapsed.

The Irish Times

Another renowned publication undergoing hard times is Ireland.com‘s host, The Irish Times. Forced to cut one-third of staff, including half of Ireland.com’s, The Irish Times began to charge for access to its traditional content in May: $73 annually, $13 monthly, or $6.50 weekly for full access to breaking news and The Irish Times online section of Ireland.com, plus access to special sites on sports, business, and technology and The Irish Times’s archives to 1996.

Ireland.com logs 2,338,593 unique users monthly. After four months marketing paid access, the site generated 6,000 paid subscriptions, a conversion rate of 0.25 percent. Even if all subscribers chose the most expensive rate, Ireland.com would generate only $156,000 per month, or jut over $2 million annually, from subscriptions. That won’t go far.

SCMP.com

A world away in Hong Kong, SCMP.com, the online site of the South China Morning Post, also has 6,000 paying subscribers. Although not under the degree of financial duress as Salon and The Irish Times, SCMP.com generated about the same results converting users from free to fee. Although it had the wisdom to offer 859,000 monthly unique users an annual rate of only $32 for full access, newsletters, and archives, it generated only marginally over 6,000 paid subscriptions: a 0.7 percent conversion rate.

FT.com

FT.com’s conversion rate is hardly any better. The online service of London’s The Financial Times still offers much news content for free. Since May, it’s marketed two levels of paid access. The first, at $95 per year, or $7.92 per month, gives a subscriber full access to news, comments, industry insights and analyses, surveys, the FT archives, and previews of the daily print edition. The second, $225 per year, or $18.75 monthly, has information about 18,000 publicly traded companies and access to a database of 500 news sources.

FT.com marketed paid subscription levels to 2.7 million unique users. Less than 30,000 have signed up. A bit over 1 percent.

Conclusion

Four major online publishers: a renowned pure-play content site, two major newspapers with very successful free sites, and one of the world’s major financial dailies. Each has great marketing and promotional power. Each spent 4 to 18 months trying to convert users into paying subscribers for traditional content. Each converted no more than 1 percent.

My study of these and others indicates the average free-to-paid conversion rate for general interest news sites at between 0.4 and 0.7 percent of unique users. Woeful! If a print publication sent free editions, then tried to convert consumers to paying subscribers and got that response level, the plug would be pulled.

Consumers will pay for online content. In my last column and my look at the AOL Time Warner merger debacle, I outlined why most won’t pay for traditional content shoveled online. A tiny jolt of subscription revenue may temporarily make publishers feel good, but walling content behind paid barriers drives most consumers to competitors.

Faced with unraveling the mystery of how to charge for online content, Sherlock Holmes would have been smarter than most online publishers today. He’d realize the solution isn’t to simply charge for traditional print content pushed online. He would know the real solution is to revamp the content into something more worthwhile to individual users’ lives and better suited to a new medium.

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